Trade Trends with Ichimoku Cloud

Ichimoku Cloud (or Ichimoku Kinko Hyo) is a technical analysis method that combines leading and lagging indicators with traditional candlestick charts in order to provide a comprehensive trend trading system. Developed by Japanese journalist Goichi Hosoda in the 1960s, Ichimoku Kinko Hyo is translated as "one balance equilibrium chart", while the common name of Ichimoku Cloud refers to its appearance. Ichimoku can
be displayed as a separate indicator in Minute, Hourly, Daily, Weekly or Monthly format.

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Trading in an Up-trend

Signals above the Cloud where the latest Cloud color (ahead) is green are stronger than where the color is red.

Go long when Tenkan-Sen (blue) crosses above Kijun-Sen (red).

Go long when Price crosses above the Kijun-Sen (red) line.

Exit when Price crosses below Kijun-Sen (red).

Exit when Tenkan-Sen (blue) crosses below Kijun-Sen (red).

Trading in a Down-trend

Signals below the Cloud where the latest Cloud color (ahead) is red are stronger than where the color is green.

Go short when Tenkan-Sen (blue) crosses below Kijun-Sen (red).

Go short when Price crosses below the Kijun-Sen (red) line.

Exit when Price crosses above Kijun-Sen (red).

Exit when Tenkan-Sen (blue) crosses above Kijun-Sen (red).

Example 1

The S&P 500 index is plotted on a weekly chart with Ichimoku Cloud.

Price above the Cloud indicates an up-trend. The first buy signal is when the blue line (Tenkan-Sen) crosses above the red (Kijun-Sen), after the green Cloud indicates the trend is firmly established. The second long entry (if pyramiding) is when Price closes above the red (Kijun-Sen) line. Again, the green cloud indicates an established trend. A third entry signal is available when the blue line (Tenkan-Sen) again crosses above the red (Kijun-Sen). Exit if Price closes below the red line (Kijun-Sen) — or the blue line (Tenkan-Sen) crosses below the red.

Example 2

Etrade Financial Corporation [ETFC] is plotted on a daily chart with Ichimoku Cloud.

Price above the Cloud indicates an up-trend. Enter long when Price closes above the red (Kijun-Sen) line. The green cloud indicates an established trend. Exit if Price closes below the red line (Kijun-Sen) or the blue line (Tenkan-Sen) crosses below the red.

In a Strong Trend

How to identify a strong trend: the blue line does not cross below the red.

In a strong trend, short-term traders may find that crosses of the red (Kijun-Sen) line are few and far between. Consider long entries where Price closes above the blue (Tenkan-Sen) line and short entries (in a down-trend only) when Price closes below the line.

Example 3

Netflix [NFLX] is plotted on a weekly chart with Ichimoku Cloud.

Price above the Cloud indicates an up-trend. The blue line (Tenkan-Sen) holding above the red (Kijun-Sen) indicates a strong trend. Enter when Price dips below and then closes back above the blue line. Exit if Price closes below the red line (Kijun-Sen) or the blue line (Tenkan-Sen) crosses below the red.

Long-term Buy/Sell Signals

Not used as much, but if the purple line (Chikou) crosses above Price, that is a long-term buy signal, while a cross below Price is a long-term sell signal.

Select Indicators and Ichimoku Cloud in the left column of the Indicator Panel. See Indicator Panel for directions
on how to set up an indicator. To alter the default settings -
Edit Indicator Settings.

Ichimoku Cloud Colors

Open the legend by clicking "L" on the toolbar or typing "L" on your keyboard. Adjust individual colors by selecting the color patches next to each indicator line in the legend.

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